The Square Chapel is one of Halifax's over 600 listed buildings – one of the largest concentrations of any town in the country – and dates from 1772. Its architect was the 18-year-old Thomas Bradley (who, it is believed, may also have been responsible for the neighbouring Grade I-listed Piece Hall). A 60 foot square structure, when it was built it had what was claimed to be the largest unsupported roof span of any building in the country. John Wesley admired the building's "utmost elegance" shortly after it was completed, although he decided not to give a service in it as "I judged more people would attend in the open air, so I preached in the cow market to a huge multitude."

Derelict and at risk of demolition, it was taken over from Calderdale council in 1988 for £25 by a group of six local theatre lovers who formed the Square Chapel Trust. Since then they have transformed it into a warm and inviting performance space which hosts over 300 plays, concerts and community events, welcoming over 40,000 visitors a year.

The new proposals will see a £5.9m development (of which £3.9m will come from the Arts Council) including a second, 120 seat, auditorium, facilities for providing cinema and live screenings, new accommodation for the many volunteers who help keep the place running, new dressing rooms, meeting rooms and offices and a new central café bar which will link to the Piece Hall visitor centre. The new development's architect is Robert Evans from the Peak District practice of Evans Vettori.

Sally Martin, Square Chapel's director, was delighted by the news, saying "The proposed extension will benefit artists, visitors and audiences by providing better facilities and even more opportunities to access a diverse programme of work by the best UK and international artists. This is a really exciting development in the life of Square Chapel and we would like to thank Arts Council England for their continued support."

Two other Yorkshire-based organisations have also been successful in applications to the Arts Council's capital investment programme. York Museums Trust will receive £3.5m towards greatly increasing the exhibition space within the confines of the existing, 1879, York Art Gallery, while also helping the new Centre for British Studio Ceramics. The Art House, in Wakefield, should get £1.5m towards converting the former Drury Lane library 33 artists' studios. Nationally, around £114m has been earmarked for capital developments by 26 organisations.

Cluny Macpherson, director of the Arts Council's Yorkshire region, said: "We're thrilled that all three applicants in Yorkshire have been successful at this stage, and it's testament to the innovative thinking behind the organisations' proposals. The fact that there's demand amongst communities for arts and cultural activity despite hard times, proves that the arts and culture are something that people really value."